SWIFT_strategy_ACSDA.pptx

SWIFT securities
Smarter securities
ACSDA, June 2021

SWIFT Securities Strategy - ACSDA - June 2021 2
What to expect from this session
Learn about how the current SWIFT strategy relates to
our securities business and understand why we are
doing this and what’s in it for you and your firm
Be familiar with the different parts of the smarter
securities initiative, its path to adoption and how CSDs
can play a crucial role
1
2

3
Content
SWIFT Securities Strategy - ACSDA - June 2021
Introduction to the SWIFT strategy
Securities business at SWIFT today
Securities industry trends
Smarter Securities: detailed overview
APIs in post-trade securities
Tokenised assets
1
2
3
4
5
6

4
TIME TO ANSWER
Which of these trends represent the greatest threats / areas of
concern for your organization?
- Upstream disintermediation
- Cost / price pressure
- Tokenization of assets
- Client expectations of speed and transparency
- Regulatory requirements
- Availability of qualified staff

5
TIME TO ANSWER
Which of these trends represent the greatest opportunities /
growth areas for your organization?
- Data services
- Tokenization of assets
- Market volatility and increased volumes
- Bilateral links with other CSDs
- Consortia and industry initiatives

6
SWIFT Strategy
6
Builds on our
foundation as an
industry co-operative
with unrivalled
security standards
to innovate rapidly
at scale, with the
right levels of risk
and control
Instant and frictionless transactions
from account to account anywhere in
the world, building on and extending gpi
Smarter securities services for
greater simplicity and efficiency
End-to-end integrity and rich data
services enabled by ISO 20022,
to help our users innovate and grow
State-of-the art digital platform that
enables messaging and transaction
services with effortless customer experience
Smarter
Faster
Better
Smarter
securities
Open state-of-
the art platform
Rich data
Frictionless
payments

7
The journey to transaction management
Moving from point-to-point messaging into end-to-end orchestration
 Standard
 Secure
 Integrity and availability
 Community reach
 Transactional referencing
 Business service levels
and quality controls
 STP enhancements
 E2E tracking and insights
 FCC controls
Messaging
1970’s – 2017
Tracking and SLAs
2017 – 2020  Frictionless payments
Ensuring accuracy and unaltered rich data
across the transaction
 Instant processing
End-to-end orchestration and built-in value
added services
 Flexible
Supports backwards compatibility and
interoperability. Counterparties interact using
multiple formats and protocol independently
 Smarter
End-to-end visibility on securities-related
activity to manage exceptions and avoid failure
Transaction Management & smarter securities
2021 and beyond

8
SWIFT Securities Business today
Of total SWIFT daily
traffic
~63%
Contribution to
SWIFT Payments traffic
>30%
Securities average daily
traffic growth
+10%
Securities contribution
to total traffic growth
+77%
Top driver for
traffic growth
The majority of
SWIFT traffic
Large global
community Securities users, including all
major (I) CSDs, Asset Managers,
Brokers and Custodians
6,000+ 150+
SMIs , including
93 (I) CSDs and 56 CCPs

Trend matrix: securities 2021-2022
Medium High
Short term
(<3 years)
Timeframe
Medium term
(3-5 years)
Proliferation of
customer solutions
(co-creation/utilities)
Adoption of cloud for
critical and non-critical
applications
FIX moving into post-
trade
Outsourcing of non-
value-added/non-core
activities
Tokenisation
of securities
Shortened Settlement
Cycle (DTCC T+1)
Low
Long term
(5-10 years)
Investors’ move towards
alternative assets
Use of DLT networks
Clients’ changing business
& operating models
API adoption
9
Impact

10
TIME TO ANSWER
Among the following trends which one are you or your firm
following more closely, or are more active in:
- Adoption of APIs
- The shortening of settlement cycles (from T+2 to T+1)
- Adoption of cloud for critical and non-critical applications
- Tokenization of securities
- Increase use of distributed ledger technologies
- Fragmentation of solutions and communication channels

Smarter Securities

SWIFT:
enabling
smarter
securities
A common shared
infrastructure for
the securities
industry
FROM
TO
Sequential
messaging
Smarter
securities
transactions
Providing post-trade services to 6,000+
institutions
Reduced complexity and cost through
standardised, secure messaging
Supporting various processes: Trade
allocation, confirmation, matching, settlement,
portfolio reconciliation, collateral
management, asset servicing and more
Providing E2E visibility, linking
messages to transactions
Providing pro-active, flexible insights
and data enrichment through APIs and
GUIs
Support exception management
capabilities and deliver business insights
Integrate key industry partners
Starts with S&R and progresses to asset
servicing, funds distribution, and then
towards all securities processes

A lifecycle of a settlement instruction tracked via Securities Monitoring Service
Asset
Manager
Securities Monitoring Service
(E2E Tracker)
Global
Custodian
Local
Custodian
Local
Custodian
MT 540
MT 541
MT 542
MT 543
GUI GUI GUI GUI GUI GUI
MT 544
MT 545
MT 546
MT 547
MT 548
MT 540
MT 541
MT 542
MT 543
MT 540
MT 541
MT 542
MT 543
MT 540
MT 541
MT 542
MT 543
MT 540
MT 541
MT 542
MT 543
MT 544
MT 545
MT 546
MT 547
MT 548
MT 544
MT 545
MT 546
MT 547
MT 548
MT 544
MT 545
MT 546
MT 547
MT 548
MT 544
MT 545
MT 546
MT 547
MT 548
13
Track
Ref
Track
Ref
Track
Ref
Track
Ref
Track
Ref
Track
Ref
Track Ref Track Ref Track Ref Track Ref Track Ref
Broker-
dealer
The messages in scope
- first iteration MT 540 till MT 548 -
will be extracted and stored in the
E2E Tracker database
The transactional
data can be
distributed or queried
by all identified
settlement parties
from the capture of
the first settlement
instruction message
on SWIFT network,
and for all following
messages
CSD

SWIFT Securities Strategy
Co-building the foundation layer: the Securities Monitoring Service
Asset Manager Broker
Foundation: E2E transaction tracking with data distribution and value-added services integration
Settlement instruction details, status, confirmation and fail status
Global Custodian Local Custodian Local Custodian
Exceptions Managers
Case resolution
Integration with exceptions
management platforms
Validation/ Enrichment
status
Instruction with unique
transaction reference
E2E
Observer Insights
Insights & Analytics
based on E2E
settlement data
Facilitate fails predictability
and penalties estimates
Penalties estimates
calculation
Real-time
consolidated view
of holdings at users
Flows updates are fed
in real time to reporting
systems
GUI
Notification service
Early and simultaneous
dissemination of the
information
GUI
• Instruction
• Status
• Confirmation
Platform interactions
Flow
SWIFT
platform
Services SSI validation/
enrichment
Instructions are populated
with updated counterparty/
SSIs
GUI GUI
CSD

Ensuring two-side tracking from initiation throughout the securities
message flows
Global
Custodian
Transaction
data
Transaction
Management
Data
Services
Data
Services
Data Exchange
APIs
Messaging
Data Exchange
One E2E tracking reference
• Known to both buy-side and sell-side
• Generated before the securities
settlement is initiated by either Trading
venue, Matching Platform, Asset
Manager or Broker dealer
• Persists throughout the securities
settlement lifecycle
Trading Venue/
Matching Platform
UTI
UTI
UTI
UTI
UTI
Global
Custodian
CSD
Buy-side Sell-side
Local
Custodian
Local
Custodian
UTI
Securities
Monitoring
Service
UTI
15
UTI
UTI
UTI
UTI
UTI
UTI
UTI
UTI

16
Leveraging the
unique transaction
identifier or UTI
Trusted
Already used today
for reporting of
financial transactions
to any authority in
any jurisdiction
Persistent
Can be carried as a
reference across
disparate systems
and processes
Unambiguous
Can be referenced
unambiguously by all
parties involved or
interested in that
transaction
Unique
52 characters, first 20 for the LEI
of the generating body
(FI/exchange/service provider)
Standard
Standardised and structured
ISO-registered format
(ISO 23897:2020)
Unique number/reference of a
financial transaction to be allocated
as agreed among the parties and/or
within the initiative or regulatory
system under which it is formed.

Leveraging
the UTI
on a global scale on
a shared service
platform
To bridge
existing
fragmented
solutions
through a shared solution
powered by a neutral
entrenched party
Through an end-to-
end two-sided,
neutral transaction
view
offering flexible formats, exception
management, and integration with
case resolution venues
Removing
a direct loss
of USD ~3 billion every
year in the securities
industry (ESCDA),
expected to increase with
CSDR penalty scheme
Delivering
full
visibility
and greater control
on settlement
transactions status
We aim to
tackle
settlement
fails
Securities Monitoring
First objective
By preventing &
addressing fails
while removing manual
intervention and enhancing
end-customer experience
17

Link
flow-to-flow
i.e. payments and
securities;
payments and FX
Address
shortages
with more
enhanced
capabilities
Support
greater
integration
from trade to post-
trade
Smarter SSI
data validation
e.g. analytics, predictability,
integration with SWIFTRef
Extend
business scope
corporate actions, collateral,
investment funds
We aim to
build more
value on the
foundation
Long term vision
18

The big
picture
vision
(recap)
Value streams
Industry drivers Target delivery Timing
High & rising cost
of settlement fails
(compounded by inefficient
exception management)
Provide full visibility and greater
control to participants on their
settlement transactions thru the
E2E tracker and shared services
MVP 2022
Our foundation
New communication
mechanisms needed
Improve risk &
compliance vigilance
APIs
KYC for NBFIs &
ISIN screening
Develop APIs to 1) interact with the
securities monitoring service; 2) respond to
market needs for new business flows in line
with strategy and product roadmap
API roadmap
continuous
delivery
Enrich KYC Registry and
screening utilities with KYC for
NBFIs and ISIN screening
2022
Co-existence of
multiple standards
Interoperability
Assess customer appetite for standards
interoperability and formulate way forward,
promote ISO 20022 data dictionary and
backward compatibility
Findings by
12/2021
19
Digitisation Tokenised assets
Assess how to carry and provide simple
access to tokenised assets. Keep working with
the industry to develop standards. Identify
reference data opportunities. Look for use
cases on how to bring digital and traditional
flows together on SWIFT
Continuous
effort

20
Sender Receiver
Sanctioned ISIN
Database
Third-party list of sanctioned ISINs
• in discussion with Industry
benchmark list providers
• Covers regulators from various
geographies
• Aiming for daily update
Integrated into existing SWIFT
Transaction Screening Service
• Applied to ISINs in category 5 MT
54X and other instruction
messages as first focus
• Allows alert-only or alert-and-block
instruction
Uses exact match on ISIN or other
security identifiers
ISIN screening: screening of sanctioned instruments in
transactions carried over SWIFT
20
Asset Manager Global Custodian
1
2
3
Sanctioned ISIN Database –
daily copy integrated in SWIFT
data environment
Expected Working model

21
Extending KYC Registry to the Securities Space
Extend population of KYC Registry users to Non-Bank Financial Institutions
• Corporates and securities players
• Starting with those using SWIFT for messaging
Aim for capital markets industry (Board supported)
• Ensure existing KYC Registry users use capital-markets-specific features
• Namely ISSA due diligence questionnaire
Approach: work with NBFIs directly and with KYC Registry “multipliers” (large # of sec’ies
counterparties) to promote adoption
Development for Q3 2021
21

22
TIME TO ANSWER
Which of these services are of interest to you, in conjunction with
securities monitoring service?
- SSI validation/ enrichment
- Notification service
- Exceptions Managers Case resolution
- Penalties estimates calculation
- Real-time consolidated view of holdings at users
- “Observer” of best providers

23
TIME TO ANSWER
Do you see the benefit of extending end-to-end visibility offered by
securities monitoring service to additional business flows, like
• Link trade-to-post-trade flows i.e. trade to settlement
• Link payment flows to upstream securities flow
• Corporate actions
• Collateral management
• Investment funds

25
APIs in post-trade securities

26
Enduring challenges for other means of communication such as APIs
No
standard
data
model
Varying
identity &
security
schemes
Different
API
channels
per bank
FRAGMENTATION
Inconsistent
business
models
Fragmented
API specs
Varying API
capabilities
across firms While APIs promise
much – the API
environment in
financial services
remains highly
fragmented

No
standard
data
model
Varying
identity &
security
schemes
Different
API
channels
per bank
FRAGMENTATION
Inconsistent
business
models
Fragmented
API specs
Varying API
capabilities
across firms
Data model
Open API specifications
Identification,
authentication, authorization
Consumption models
STANDARD
STANDARDIZED
API APPROACH
Standardising APIs in financial services
27

28
An asset manager’s network of custody, fund administration and asset servicing
Asset managers and brokers
can have as much as 150
account servicers (potential
API providers) only on the
SWIFT network
Source: SWIFT 2020

29
Mutualization of API components
Mutualization and standardization
of non-competitive components:
• Security
• Identity management
• Authentication
• Encryption
• Threat & Vulnerability
• Data model
Users focus on differentiators:
• Data architecture
• New services
• Client experience

30
Awareness of APIs in securities
72%
46%
99%
Asset manager’s awareness of APIs in post-
trade space (BCG)
2018
2019
2020
Offer/demand
30%
60%
10%
Confirms an increasing
demand from clients
Confirms an increasing
offer from providers
None or little
demand/offer
API trends as voted by the Senior Securities Groups in
APAC, UK and EMEA

31
APIs in securities: main use cases today
Status reporting APIs: real-time access to the status of a trade or
settlement instruction replacing manual queries.
Asset servicing / Corporate Actions APIs: instruct and get
confirmations for voluntary reorganizations. Submit, update or query
market claims
Account management: open, manage, close cash or custody
accounts to replace manual queries or MT 599s.
Account balances: receive cash balances or securities positions from
banks, custodians or fund admins in real-time in order to allocate,
optimize or automate the usage of available funds, collateral or any
other asset.
NAV APIs: enables users to request per-unit fund net asset values
(NAVs) for all the funds they entrust to fund administrations, rather than
wait for scheduled statements.
Examples of firms with public offers
Most commonly advertised use cases

API achievements in 2020
New SDK and
Microgateway
More than 2300
developers registered on
the Developer Portal
(developer.swift.com),
leveraging the API
catalogue and sandbox
environments
Developer
portal growth
API co-creation working
groups put in place in the
cash management and
capital markets with
~80 participants
Standardising APIs
online session with
2,250+ developers
API
Working Groups
The new API platform
went live and in
production
2 billion API calls/year,
400+ users (KYC,
tracking, reference
data, sanctions
screening)
API Platform
in production
The new API connectivity
products went live.
12 users already live and
50+ in development

33
TIME TO ANSWER
On API trends or awareness, do you
• confirm an increasing demand from clients
• confirm an increasing demand from providers
• no or little demand

34
Tokenised assets and more

35
Context:
Tokenized assets are too big to ignore by traditional financial market participants
Tokenized securities
Research and surveys from
institutions such as the World
Economic Forum (WEF),
Deloitte or McKinsey (see table
of sources for more detail)
project that up to 10% of the
global Gross Domestic
Product will be stored and
transacted with the help of
distributed technology by 2025–
27.
Following this methodology,
tokenized markets can grow to
as big as USD 24 trillion of
assets by 2027.
Sources: Finoa; World Bank, SWIFT
Projected Tokenized market volume until 2027 (in trillion USD by asset class)
Comparative metrics
Global stock exchange market
cap in 2018:
USD 68,7 trillion
xx% Year-on-year
growth (forecast)
10-year
CAGR:+62%

36
A taxonomy of DLT-based settlement arrangements
Payment
Account Token
Securities
Account
 Instant settlement is technically feasible, however market
practice is majority at T+2 settlement
 Synchronisation and integration between DLT and
traditional securities flows required
 Stablecoin or CBDC are potential candidates as
payment tokens
 Requires pre-funding of tokens on account with service
provider to ensure smooth settlement; blocks liquidity
(similar to A2A situation)
Token
 Synchronisation and integration between DLT and
traditional payment systems required
 Securities tokens can be DLT-native or tokens representing
existing securities
 Solutions can offer multiple connectivity options, incl.
SWIFT (ASX/ID2S)
 Enables settlement with central bank money
 Instant settlement is technically feasible
 Two models have been tested incl. both cash and
securities on one ledger or on separate ledgers
 In case of separate ledgers, integration and
synchronisation between DLT infrastructures is needed
 Stablecoin or CBDC are potential candidates as
payment tokens; can be linked with central bank
accounts (RTGS)
 Requires pre-funding of tokens on account with service
provider to ensure smooth settlement; blocks liquidity
(similar to A2A situation)
 Securities tokens can be DLT-native or tokens
representing existing securities
 Instant settlement is feasible
SWIFT Securities Strategy - ACSDA - June 2021 CBDC: Central Bank Digital Currency, mainly wholesale CBDC; tokenised assets can be
DLT-native or a tokenised representation of traditional assets
The main threat is the proliferation of numerous DLT-based closed loop systems. However, clients may want to benefit from a central ‘network of networks’ which SWIFT could
provide to ensure plug-and-play interoperability with a multitude of DLT infrastructures to decrease implementation costs for clients.
1 2
3 4
Non-exhaustive; Selected examples

37
Emerging digital ecosystem: tokenized assets
The industry is going through a transformation and is reinventing itself:
‒ Although the post-trade infrastructure is built on performant and reliant
technology, modernisation of this infrastructure is seen to be needed in order
to address remaining inefficiencies in traditional capital market space and win
new opportunities by providing new & more investors access to new & more
issuers, whether for DeFi or institutional participants.
‒ A new generation of technology providers is entering the market with
solutions built on alternative technologies such as DLT, smart contracts,
tokenisation and AI. Incumbent securities firms are increasingly collaborating
with these FinTechs, bilaterally or in consortia, to modernise their
infrastructure, redesign existing business processes, improve automation and
enhance customer experience.
‒ Tokenisation and DLT-based platforms are very often positioned as option to
automate processing of the growing portfolio of non-traditional instruments
(derivatives, digital assets, private equity)
‒ The “Fear-Of-Missing-Out” is a not-to-be-neglected driver for securities
servicing firms to be part of the change, alongside the mandate to serve
underlying clients seeking exposure to this new asset class. Will the increase
in innovation lead to actual implementation of new business processes at
scale? By when, and in which segments? In other words how does the
industry view the evolution of the balance between risks, costs, and benefit ?
Custodians
• Regulations around crypto-asset custody get approved in more
countries, incl. US
• Increased interest in digital assets from institutional investors
who need state-of-the-art custody services
Depending on the risk they are willing to take, custodians look into
offering crypto-custody services themselves or partner with new
crypto custodians or insource the tokenization
Asset managers
• Since 2020, an increasing number of larger asset managers
have started allocating crypto-assets to their investment fund
portfolios
Broker-Dealers
• Support the issuance of tokenized bonds, start funding new
entrants, experimenting or launching new services to support
the digital asset economy
Regulators
• Regulators in specific countries lead the way to regulate and/or
pilot digital assets, securities tokens and DLT/blockchain
technology
Securities Market Infrastructures
• Securities Market Infrastructures experiment and design a new
infrastructure on alternative rails, with different levels of success
Per segment view

38
Pre-requisites, benefits and challenges of DLT-based settlement
Benefits
• Settlement risk reduction: enables shortened
settlement time which will reduce possibility of
an event happening that would block a party
to foresee the cash or securities for
settlement
• Projected cost savings and efficiency gains
(incl. reconciliation)
• Move from sequential to simultaneous
communication
• Paves the way for potentially smoother asset
servicing processing
Challenges
• Market readiness & costs of implementation,
integration
• Connectivity with legacy systems (business
applications, combining on-chain and off-
chain data)
• Connectivity with payment system to allow
for simultaneous settlement (DvP)
• Impact on liquidity (pre-funded accounts),
margin requirements in case of instant
settlement
• Scalability: decentralised nature requires every
node to receive all communication
(throughput/number of participants)
• Governance, consensus model and privacy
issues, roles & responsibilities
• Settlement finality vs consensus mechanisms
• Manual processes
• Financial Crime Compliance and cybersecurity
• Different pace of innovation, implementation
and adoption may lead to market fragmentation
Pre-requisites
• Regulatory framework and alignment across
jurisdictions (eg, legal validity of tokens,
issuance of tokenised securities)
• Aligned market practices
• Common taxonomy
• Standardisation

39
Exploring tokenization
Substantiate the benefits of a mutualized solution through impact analysis and
co-design initiatives
Standardisation
— Create and harmonise APIs
— Update MTs, MXs, and ISO data repository
— Work with ISO and other standards bodies on
token references
How: client working groups; internal work
Deploying updated APIs and messages
— Bilaterally or hub-to-spoke for existing SWIFT
users
— May involve connecting new entities onto SWIFT
— Connectivity TBC (SDK vs. SWIFT infra.re-use)
How: work with client initiatives + central
harmonization
Linking to traditional fiat payments
— Working with existing clients and new tokenization
platforms – stop-gap / middle ground?
— Interface between gpi as a platform and external
(typically DLT) platform
How: continue bespoke client initiatives + follow-up of
strategy customer consultations
Big picture exploration
— Understand economics, scenarios, timelines
— Understand SWIFT’s role (multi-connector, “the”
fabric, …)
How: SWIFT institute, Sibos, co-publications, working
group participation, pilot/PoC
Impact analysis of “a single window for tokenized and
traditional assets”

40
SWIFT & Accenture Central Bank Digital Currencies White paper (May 2021)
Leverage learnings
Leverage technology
builds
CDBC as on-ledger DVP
cash leg
Similarities and
differences across
remaining asset
spectrum

41
Reference: The different roles SWIFT could potentially fulfil for CDBCs
Moving forward, we plan to explore in collaboration with our members and
wider community in the following areas:
Cross-network support
For CBDCs, we can facilitate interoperability between CBDC
and non-CBDC payment networks, which will be necessary
Provide CBDC
application offerings
SWIFT can leverage its suite of interfaces and services to interact
with CBDC payments applications, reducing the cost of CBDC adoption
Deliver critical
network services
In addition to the role of identity manager, SWIFT can leverage its position as
a trusted authority to provide a range of critical services for CBDC networks
Act as a central
technical operator
SWIFT could leverage its existing network and infrastructure
to provide the DLT network upon which CBDCs are built

42
TIME TO ANSWER
What timeframe for broad adoption of securities tokenization in the
wholesale space your firm is planning against?
- It’s already here!
- In the next 1-5 years
- In the next 6+ years
- Only when CBDCs are widely used in the wholesale space
- Other

43
TIME TO ANSWER
What are the significant challenges that tokenization may be able to address?
• minimize the need for reconciliations
• reduce manual interventions
• reduce risk and cost across processes
• unlock liquidity
• enable better balance sheet management across and between firms
• allow your firm to benefit and offer securities services across the full range of
assets

44
Legal Notices
Copyright
SWIFT © 2021. All rights reserved.
Disclaimer
The information in this document is subject
to change without notice and should not be
construed as a commitment by SWIFT.
SWIFT assumes no liability for any errors,
inaccuracies or incompleteness contained
this document.
Confidentiality
SWIFT’s business activities are competitive.
We view our insights, approaches, plans as
proprietary and/or highly confidential, and
look to you to protect SWIFT’s rights and
interests in any information, data and
material you may obtain in connection with
our consultation about SWIFT’s future
strategy (the “Purpose”), including but not
limited to this presentation. Please access,
use or share it on a strict need-to-know
basis for the Purpose only and, in all cases,
do not disclose it outside your group
organisation without the prior written
consent of SWIFT. By accessing, using or
sharing it you will be deemed to have
accepted to protect it as per SWIFT
customer confidentiality obligations as set
out in the SWIFT General Terms and
Conditions (available on SWIFT’s website).
Assumptions
By providing any information, feedback,
comment or material in connection with the
Purpose, you will be deemed to confirm that
(i) SWIFT has the right to use it as SWIFT
thinks fit in connection with the Purpose
without payment to any party; and (ii) any
intellectual property rights created by or for
SWIFT as a result or which subsist in it shall
vest in SWIFT absolutely. Also, please
ensure it is free from any competitively
sensitive information.
Trademarks
SWIFT is the trade name of S.W.I.F.T. SC.
The following are registered trademarks of
SWIFT: 3SKey, Innotribe, MyStandards,
Sibos, SWIFT, SWIFTNet, SWIFT Institute,
the Standards Forum logo, the SWIFT logo
and UETR. Other product, service, or
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names, trademarks, or registered
trademarks of their respective owners.

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